CALIFORNIA ATTORNEY'S FEES

Fee Clause Interpretation: Based On A Broad Fee Clause, The Lower Court Correctly Construed An Option Agreement And Awarded Over $1.371 Million In Fees

Shows How Fee Motions Can Be Mini-Trials On Interpretation Of Fee Clauses.

               In Preservation, Finance, Rehabilitation & Development, LP v. Associated Financial Corp., Case No. B325694 (2d Dist., Div. 4 Aug. 13, 2024) (unpublished), defendant won a bench trial in a complex loan transaction case, with the lower court awarding defendant prevailing party fees of $1,371,017 (out of a requested $1,414,748) under a fee clause contained in an options agreement.  The 2/4 DCA affirmed, agreeing with the trial judge that it was necessary to engage in contractual interpretation to see if the option agreement was in play.  It was, and operative broad fees clause was inclusive to cover the option dispute.

Fee Clause Interpretation, Section 1717: Prevailing Defendant’s Dismissal Of Cross-Complaint After Winning Did Not Give Rise To Fee Exposure

Santisas Rule Applied, With Dismissed Cross-Complaint Only Raising Contractual Claims.

               In Colaco v. Marcum LLP, Case No. B326252 (2d Dist., Div. 2 July 30, 2024) (unpublished), plaintiff sued his accounting firm for misrepresentation after losing money in some investments, with the defendant obtaining summary judgment and then voluntarily dismissing a cross-complaint containing indemnity and declaratory relief cross-claims.  Although the accounting firm’s engagement letters had broad fee clauses, the lower court denied plaintiff’s request to be awarded attorney’s fees under Civil Code section 1717.  The 2/2 DCA affirmed under the Santisas v. Goodin, 17 Cal.4^th 599, 602 (1998) rule applicable to voluntarily dismissed contract claims.  Plaintiff could not distance himself from admissions that he was suing “on the contract,” and he could not articulate persuasively how the dismissed cross-claims were tort claims falling outside of Santisas. 

Fee Clause Interpretation, Judgment Enforcement, Section 1717: $70,635 Attorney’s Fees Award Favorable To Nonsignatory To A Contract, Reversed As A Matter Of Law

Plaintiffs’ Claims Against Nonsignatory Did Not Seek To Enforce The Contract, With No Judgment Enforcement Fees Available To The Nonsignatory.

               Crooymans v. Foumberg, Case No. B325110 (2d Dist., Div. 3 June 18, 2024) (unpublished) is a stark reminder that a nonsignatory to a contract, more often than not, does not face fee exposure under a contractual fees clause when that litigant was not a party to the underlying contract.

               In this case, plaintiffs obtained a favorable arbitration award against their late-father’s tax planning attorney, with a separate $1.7 million fee component embedded in the award under an attorney engagement letter with a fees clause.  But the relevant part of the case is that plaintiffs sued defendant Foumberg, a nonsignatory to the attorney engagement agreement, because he did some estate planning transfers for the tax planning attorney and his wife, with plaintiff claiming he was a shill for the judgment creditor attorney.  Foumberg won on a demurrer on the merits (not at issue) and then moved for attorney’s fees under Civil Code section 1717 based on the engagement letter to which he was not party.  The lower court awarded him $70,635 in attorney’s fees, prompting an appeal.

               The 2/3 DCA panel reversed as a matter of law.  The primary flaw was that Foumberg, a nonsignatory to the attorney engagement letter with a fees clause, was not sued under that agreement—the “on the contract” requirement of section 1717 was not satisfied.  In fact, the merger doctrine applicable when a judgment is entered which extinguishes contractual rights all the more so dictated the conclusion that no contractual fee recovery was available:  this meant plaintiff could not recover fees against Foumberg, so he could not do so either.  (Chelios v. Kaye, 219 Cal.App.3d 75, 79-80 (1990), abrogated by statute in Code Civ. Proc., § 685.040 in some regards; GrayI CPB, LLC v. SCC Acquisitions, Inc., 233 Cal.App.4^th 882, 890 (2015).)  Plaintiffs argued that Foumberg had alter ego exposure, but this did not resonate for two reasons:  (1) plaintiffs attempted “reverse piercing” which is not generally allowed; and (2) plaintiffs were attempting recovery on a tort—not contract—claim which was not within the scope of the attorney engagement contractual fees clause, relying on the reasoning in Brown Bark III, L.P. v. Haver, 219 Cal.App.4^th 809, 828-829 (2013).  Finally, because plaintiffs argued Foumberg was accountable for fees as an alter ego, the appellate panel found that plaintiffs had not sued the attorney under traditional alter ego analysis, had sought unconventional reverse piercing, and had obtained a judgment against attorney which was based on tort rather than on a contract. 

Appealability, Estoppel, Fee Clause Interpretation: Prevailing Party In Appellate Writ Proceeding Was Entitled To Small Routine Costs, But Not Attorney’s Fees

Appeal Costs Order Was Appealable, But There Was No Fee Entitlement Basis—Estoppel Argument Was Rejected.

            In Kaur v. Pabla, Case No. F086273 (5^th Dist. May 14, 2024) (unpublished), plaintiffs obtained an appellate writ mandate order and moved for appellate costs, both routine expenses and attorney’s fees.  In the end, the routine cost of $775 for the appellate filing fee was granted, but the request for attorney’s fees of $31,680 was denied by both the trial and appellate courts.

            The main problem for plaintiffs was that they could not show any fee entitlement basis.  They argued that prayer for fees by the other side created an estoppel, but the majority approach on this issue was against them, citing Blickman Turkus, 162 Cal.App.4^th at 898.   Because the defendants were not parties to the documents with fee clauses (some of which were forged or non-existent), there was no fee entitlement for purposes of allowing plaintiffs to recover fees.

            The interesting aspect of this case was on appealability.  The issue is whether an appellate costs order is appealable or only interlocutory in nature.  In a scholarly discussion noting a split in authority, the Fifth District sided with the majority view that the order was appealable. 

Construction, Fee Clause Interpretation: Because Surety’s 2010 Contract Had A Fees Clause, It Was Erroneous To Deny Fees Based On A 2015 Contract Having No Such Clause

2015 Contract Necessarily Referenced The 2010 Contract, So Remand Was Necessary To Determine If Fee Allocation Was Necessary And The Reasonableness Of Surety’s Request.

               In FEI Enterprises, Inc. v. Massachusetts Bay Ins. Co., Case No. B329502 (2d Dist., Div. 2 Apr. 4, 2024) (unpublished), surety won a summary judgment against its general contractor for surety’s declining to contribute to a settlement in a lawsuit related to the surety bond.  Surety moved for $413,556.51 in attorney’s fees, but the lower court denied it on the belief the request was founded on a 2015 contract having no fees clause.  The 2/2 DCA reversed as a matter of law because the 2015 contract did refer to the 2010 contract with the fees clause, necessarily meaning the fees clause was in operation.  On remand, the fee hearing would focus on whether to allocate fees for the surety enforcing the 2010 contract on its implied-in-fact contract claim and on how to fix the amount of reasonable fees to be awarded.  The appellate court itself refused to fix fees because “these are tasks best presented to the trial court in the first instance.” (Slip Op. at p. 17.)

Allocation, Fee Clause Interpretation, Section 1717: Intervening Insurer Not Responsible For Fees To Prevailing Party, While Litigant Losing Alter Ego Arguments Was Responsible For Fees

Lower Court Also Did Not Err By Awarding Insurer Rate Fees To A Prevailing Party, Apportioning Out Noncompensable Fees.

               Yee v. Weinberg, Case No. A163850 et al. (1^st Dist., Div. 4 Mar. 5, 2024) (unpublished) is a situation where a plaintiff landlord prevailed against defendant tenant, with landlord receiving some fees (but none against the intervening insurer eventually withdrawing from the case), but with landlord having to pay fees to defendants not proven to be alter egos.  Some of the winning defendants were awarded fees, but at lower rates charged by the insurance carrier and with some apportionment done by the lower court.

               All of the fee determinations were affirmed on appeal.  The insurer was not responsible for fees because (1) there was no contract or statute allowing fee entitlement to landlord, and (2) insurer’s dismissal of its intervention complaint was a contractual dismissal which invoked the Santisas fee bar.  The fee award to the alter ego defendants was no fluke because plaintiff failed to prove they were alter egos, which invoked Reynolds Metals as the fee entitlement basis.  Defendants complaining about the lower court’s reduction in fee requests, through cross-appeals, showed no abuse of discretion in allowing compensation only at the rates charged by the insurance carrier’s counsel and apportioning out fees which were not compensable.

Estoppel, Fee Clause Interpretation, Section 1717: Lower Court’s Denial Of Attorney’s Fees To Prevailing Plaintiffs In CC&R Flag Pole Placement Dispute Was An Abuse Of Discretion

Judicial Estoppel Applied And Plaintiffs Were The Unqualified Winners.

               In Rowan v. Hilliard, Case No. D081687 (4^th Dist., Div. 1 Feb. 29, 2024) (unpublished), plaintiffs prevailed against defendants/cross-complainants in a flag pole placement dispute under CC&Rs, which had a fees clause giving the lower court the authority (“shall have the authority”) to award reasonable attorney’s fees to the prevailing party.  The trial judge found that this clause was only discretionary even though plaintiffs prevailed.

               The 4/1 DCA reversed.  It initially determined that defendants were judicially estopped from denying the fee clause applied, because they previously convinced a judge to award fees after winning a summary judgment motion (a win reversed earlier by the appellate court).  Further, it was an abuse of discretion not to award fees because plaintiffs were the unqualified winners and Civil Code section 1717 applied so they were entitled to fees.

Fee Clause Interpretation, Prevailing Party, Section 1717: Lower Court Erroneously Denied Attorney’s Fees To Plaintiff Who Obtained A Majority Of What She Wanted In A Loan Agreement Case With A Fees Clause Only Covering A Judicial Foreclosure Case

Under Civil Code Section 1717, Lack of Recital Saying Contract Was Negotiated/Executed With Counsel Representation Kept The Clause From Applying Narrowly, With The Matter Remanded For Purposes Of Determining If Plaintiff Was The Prevailing Party For Fees Even Though Plaintiff Did Not Pursue Routine Costs Recovery.

            In Andrade v. Western Riverside Council of Governments, Case No. D080978 (4^th Dist., Div. 1 Feb. 20, 2024) (published), plaintiff filed a lawsuit against the Council and others claiming she had been fraudulently enrolled in a PACE energy program resulting in a lien and increased property tax assessments, pleading multiple contractual theories for rescission, restitution, damages, and declarations that the agreements were partially or wholly unenforceable.  After an investigation through a state department confirming contractor fraud, the Council voluntarily released its lien and reimbursed plaintiff for the increased property tax assessments.  Plaintiff obtained much of the relief she wanted through Council’s actions, but never obtained a declaration that the agreements were unenforceable.  The operative loan agreements between plaintiff and Council had a narrow fees clause applying only to a judicial foreclosure action prosecuted by Council, something which did not occur.  The lower court denied plaintiff’s attorney’s fees request, determining that the fees clauses did not apply because no judicial foreclosure action was pursued by Council.  (Plaintiff ultimately did not pursue a costs recovery.)

            Initially, the appellate court agreed that the action was a contract because it concerned whether the loan agreements were valid and enforceable, with plaintiff’s theory of invalidating the contracts being “on the contract” under Civil Code section 1717 and with dicta in Xuereb/Dintino decisions not altering that conclusion.  Second, although acknowledging that the fees clause was narrow and applied only to judicial foreclosure actions, the 4/1 DCA panel relied on section 1717(a) to conclude that the fee provision applies to the entire contract unless the parties expressly recite that the agreement was negotiated/executed by parties represented by counsel somewhere in the contract or fees clause—that recital was not present, and the appellate court deemed that this recital was necessary to prevent the agreement from being a “lopsided arrangement that section 1717 prohibits.”  Finally, given its prior conclusions, the appellate court remanded to have the lower court determine if plaintiff “prevailed” for fees under section 1717:  after all, even though she won a lot, she did not prevail across-the-board such that a pragmatic inquiry was necessary on remand.

BLOG OBSERVATION—This case suggests that in fee clauses, transactional attorneys need to include the negotiation/execution recital or be at risk that a narrow fee clause will not be enforced where the fee motion issues on based on the entire contract.  Huge drafting tip here.

Employment, Fee Clause Interpretation, Prevailing Party, Settlement, Special Fee Shifting Statutes: Denial Of Labor Code Section 1194 Attorney Fees To Plaintiffs Who Incurred Post-Settlement Fees After Employer Breached The Settlement Agreement Reversed

Because The Fees Provision In The Parties’ Settlement Agreement Did Not Address Fees Incurred Post-Settlement, Plaintiffs Were Entitled To Recovery Under Section 1194, But Only As To Fees Incurred In Conducting Discovery And Litigating To Trial, Not In Enforcing The Settlement Agreement.

            In Lorta v. Bishop, Case No. G062166 (4^th Dist., Div. 3 February 13, 2024) (unpublished), five employees, who had sued their employer for recovery of wages, filed a motion seeking attorney fees of $331,261.25 – based on a $265,009 lodestar and a 1.25 multiplier – after employer failed to comply with the parties’ stipulation for settlement.  Plaintiffs incurred the fees post-settlement by conducting discovery and preparing for trial, and by enforcing the settlement agreement, and claimed entitlement to the fees under Labor Code sections 1194 and 226, and Code Civ. Proc. section 1021.5.  Defendant argued that because there was no trial or determination by the trial court on the merits of Plaintiffs’ claims, Plaintiffs were not prevailing parties under sections 1194, 226, and 1021.5, and not entitled to statutory fees.  Defendant further argued that Plaintiffs had prevailed only in enforcing the settlement agreement, which amounted to a breach of contract claim, and the settlement agreement provided that each party would bear its own fees and costs.  The trial court agreed and denied Plaintiffs’ motion for fees.

            Plaintiffs appealed and obtained a reversal and remand as to fee recovery under section 1194 – a one-way fee-shifting statute that allows employees to recover fees in a successful action for minimum wage or overtime. 

            In an opinion authored by Justice Sanchez, the 4/3 DCA found that the settlement agreement was silent as to any fees incurred after the settlement agreement – thereby entitling Plaintiffs to post-settlement attorney fees under section 1194 insofar as those fees were not incurred to enforce the settlement agreement.  In reaching this conclusion, the panel determined that the settlement agreement had the same effect as a judgment as defined under Code Civ. Proc., § 577 and constituted a recovery in a civil action within the meaning of section 1194.

Fee Clause Interpretation: Easement Language Only Referencing “Costs And Expenses Of Defense” Arising From The Easement Properly Found Not To Encompass Attorney’s Fees

Failure To Reference Attorney’s Fees Was Fatal To Fee Recovery.

            Draftsmanship, draftsmanship, draftsmanship is the theme of the case we next post on, Smith v. Guillosson, Case No. B322717 (2d Dist., Div. 2 Jan. 30, 2024) (unpublished). 

            Plaintiff/cross-defendant prevailed on a patio and a walkway easement dispute where there were clauses indicating that the losing party adjacent neighbor “agrees to pay for any and all liability or damages including costs and expenses of defense” arising from use of the easements.  Prevailing party moved for attorney’s fees, with the lower court tentatively awarding $462,714 in fees (yes, you read that right) but then ultimately denying fees altogether because the easement language did not encompass attorney’s fees in a first-party situation.

            The 2/2 DCA affirmed.  Attorney’s fees and other expenses of litigation, whether termed as costs, disbursements, outlays, or something else, are mutually exclusive, such that costs do not include attorney’s fees.  The easement language did not expressly address attorney’s fees, with no contractual implication proper.  Fee denial affirmed.

Fee Clause Interpretation: No Attorney’s Fees Exposure In Court Action Because Operative Contractual Fees Clause Only Applied To Arbitration Activities

Choosing Litigation Over Arbitration Means The Party Did Decide To Forego Fees.

            Roberts v. Crandell, Case No. B320951 (2d Dist., Div. 3 Jan. 26, 2024) (unpublished) is yet another unpublished decision with reasoning which supports the view that a litigant choosing to litigate in court, rather than arbitration (where the contractual fee clause only encompasses arbitration), cannot recoup attorney’s fees as the prevailing party in a court case.

Family Law, Fee Clause Interpretation, Indemnity: Some Parts Affirmed, Some Parts Reversed And Remanded In Appeal Involving Community Or Separate Property Liability For Indemnification Obligations

Also, Fee/Costs Award Under Indemnity Agreement Only Recoverable Against Ex-Husband, A Signatory To The Agreement, But No Fee Exposure Under The Third-Party Indemnity Provision; Needs-Based Fees Paid To Both Spouses Are Separate Debts Of Husband For His Need-Based Fees And Community Debts For Fees To Both Spouses.

            Acting Presiding Justice Moore, in In re Marriage of Nakamoto and Hsu, Case No. B061363 (4^th Dist., Div. 3 Jan. 3, 2024) (unpublished), dealt with a written indemnity agreement between ex-husband and his siblings (with ex-wife not being a party to the agreement).  Former spouses believed that the siblings owed ex-husband roughly $3 million, which had been transmuted to community property, proceeding to a trial at which former spouses lost.  The lower court awarded siblings over $2.4 million in costs and fees against ex-husband separately, ex-wife separately, and community.

            On appeal, the 4/3 DCA panel agreed that only the community, not ex-wife separately, were liable for ex-husband’s indemnity obligations under Family Code section 910(a), because Family Code section 913(b) did not visit this obligation on her separately.  The lower court also erred in including attorney’s fees that siblings incurred in litigating against ex-husband as to ex-wife.  However, ex-husband was responsible for these fees under the indemnity fees clause, but not a third-party claims provision.  Finally, needs-based fees awarded to both former spouses by siblings under Family Code section 2030 were a separate obligation of ex-husband as well as a community obligation. 

Fee Clause Interpretation, Section 1717: Lower Court Erred In Denying Fees To A Parties’ Successor Under An Easement Settlement Agreement

Fees Clause Did Encompass The Parties And Their Successors.

            In Elusive 8307, LLC v. Canterman, Case No. B321096 (2d Dist., Div. 4 Jan. 3, 2024) (unpublished), prior owners of plaintiff's and defendant's adjacent properties entered into a settlement agreement granting an easement to plaintiff over a portion of defendant’s property.  Plaintiff lost an easement interpretation dispute with defendant, but defendant was denied attorney’s fees under an attorney’s fees provision in the settlement agreement.  The 2/4 DCA panel reversed.  Plaintiff did seek to interpret the easement settlement agreement so that its claims were founded “on the contract” under Civil Code section 1717.  Because both parties were successors-in-interest under the settlement agreement, that meant the fees clause was binding on subsequent parties.

Fee Clause Interpretation, Landlord/Tenant: Unlawful Detainer Action Did Not Arise Out Of Lease Fees Clause Given That Foreclosing Landlord Was Suing On A Statutory Basis For Obtaining Possession

Unique Facts Of The Case Governed The Outcome.

            The breadth or narrow nature of a contractual fees clause frequently can determine whether fee entitlement exists in a case.  De Witte Mortgage Investors Fund, LLC v. Carradine, Case No. B322747 (2d Dist., Div. 1 Dec. 19, 2023) (unpublished) vindicates that general principle.  Briefly stated, an entity acquired ownership of a property through foreclosure and then sought to evict certain defendants, with Carradine being added as a party to an unlawful detainer proceeding.  Carradine was successful because the new owner did not comply with municipal code requirements so as to be entitled to an eviction.  However, the lower court denied Carradine’s request for attorney’s fees as the prevailing party under a lease clause.

            The 2/1 DCA affirmed.  The appellate court agreed that the unlawful detainer proceeding was not premised on a lease with true prior tenants.  Losing party premised possession on a statute applicable to obtaining title by a foreclosure sale, and it lost based on failing to satisfy a municipal statute—nothing based on the lease.  The order denying fees was sustained on appeal.

Fee Clause Interpretation, Prevailing Party: Where Plaintiff Under An Ejectment Claim Obtained Possession Before Voluntarily Dismissing Complaint, Defendants Could Not Be The Prevailing Parties

Interpretation Of The Lease Language Led To That Result. 

            In A & N Industrial Properties, LLC v. Bart & Judy’s Bakery, Inc., Case No. B322730 (2d Dist., Div. 4 Nov. 13, 2023) (unpublished), plaintiff landlord sued a delinquent holdover tenant for breach of contract, common counts, breach of guaranty, and ejectment under a lease with a prevailing party fees clause.  After the complaint was filed, defendant tenant notified landlord that possession of the premises was being tendered back, which inspired landlord to dismiss its suit without prejudice.  Under Santisas (our Leading Case No. 6), no fees were recoverable on the contract claim.  However, tenant argued it was the prevailing party on the noncontractual ejectment claim, and the lower agreed by awarding it attorney’s fees.  The 2/4 DCA reversed as a matter of law because tenant did not prevail since landlord achieved its objective of obtaining possession from tenant.

Assignment, Fee Clause Interpretation: Escrow Company Incorrectly Denied Prevailing Party Attorney’s Fees In Real Estate Against Buyer’s Assignee, But No Fee Award Was Proper Against Assignor

Remand Was In Order For Fee Determination Against Buyer’s Assignee Vis-a-Viz The Escrow Company.

            In Sushi KJ Corp. v. Hana Escrow Co., Inc., Case No. B325421 (2d Dist., Div. 2 Aug. 24, 2023) (unpublished), a buyer—an assignee of the buyer’s predecessor in interest--sued an escrow company for negligent misrepresentations arising out of a seller’s alleged tax liability misrepresentation.  Buyer lost a demurrer to the escrow company, which was affirmed on appeal.  There was an indemnity fees clause, but it was broader such that it was the equivalent of a fees clause in the escrow instructions.  Escrow moved for $20,080 in attorney’s fees under the contract clause against buyer and buyer’s assignor (buyer’s predecessor).  The lower court denied the fee requests against both, reasoning that it was on a negligent misrepresentation which was not “on the contract” under Civil Code section 1717.

            The appellate court affirmed in part and reversed in part.  The reversal occurred as to the buyer (the assignee) because the fee clause was broad enough, on a contractual interpretation basis, to include recovery on a negligent misrepresentation claim (the escrow clause applied to “any and all … attorney fees incurred by the escrow holder in connection with … defending litigation ….”).  But the fee denial was affirmed against buyer’s assignor, given the fees clause only applied to a “party” and assignor was no longer that upon assigning rights to the assignee.  Independently, because assignor was no longer a party to the contract, any negligent misrepresentation claim was not “on the contract” under section 1717.  So, the matter was remanded to let escrow renew a fee motion against buyer, the assignee, in the real estate litigation upon which assignee did not prevail.

Deeds Of Trust, Fee Clause Interpretation, Indemnity: After Paying Off Loan Demand, Non-Prevailing Borrower On Economic Duress/Implied Covenant Claims Correctly Assessed With Contractual Fees Of $2,856,956.82 And Costs Of $38,184.54

Contractual Clauses, Including One In A Deed Of Trust, Were Fee Provisions.

            Modern litigation can be expensive.  It can even be more expensive where there is a fee-shifting basis in contractual documents.  Borrower learned that hard lesson in The Palace at Washington Square, LLC v. Mechanics Bank, Case Nos. A164195/A164799 (1^st Dist., Div. 3 Mar. 17, 2023) (unpublished).

            After honoring a loan payoff demand, borrower sued lender for economic duress and breach of the implied covenant of good faith and fair dealing.  Borrower lost those claims, with the referee later awarding lender $2,856,956.82 in attorney’s fees and $38,184.54 in costs under various promissory note, loan agreement, and deed of trust provisions.  Borrower’s appeal did not change the result.

            The trust deed provision entitled “Indemnification” did cover third-party exposure, but also had broad language showing that it also applied to actions between borrower and lender involving the loan documents and deed of trust.  That took it outside case law (see our category “Indemnity”) where only a third-party indemnity clause was involved.  (Baldwin Builders v. Coast Plastering Corp., 125 Cal.App.4^th 1339, 1344-1345 (2005); Continental Heller Corp. v. Amtech Mechanical Services, Inc., 53 Cal.App.4^th 500, 508 (1997).) 

            Then, borrower argued that the deed of trust did not allow for a fees award because, based on opinions such as Hart v. Clear Recon. Corp., 27 Cal.App.5^th 322, 325, 327 (2018) and Chacker v. JPMorgan Chase Bank, N.A., 27 Cal.App.5^th 351, 356-358 (2018), the fees were to be added instead to the debt secured by the deed of trust.  The appellate panel disagreed, because there was no such language in the deed of trust, bolstered by a further provision indicated that borrower’s obligations survived repayment of the secured obligations and satisfaction of the deed of trust.

Equity, Fee Clause Interpretation: Prevailing Party Awarded Substantial Fees Despite A Bad Typo In The Contractual Fees Provision

Prevailing Party Did Obtain $538,961 In Fees After Reformation By Trial Judge, Affirmed On Appeal.

            We bloggers have seen this situation before.  A litigant, like the one in California Décor, Inc. v. Medrano, Case No. B313743 (2d Dist., Div. 2 Mar. 15, 2023) (unpublished), prevailed on its own case and defeated a cross-complaint.  So, that naturally took everyone to attorney’s fees recovery, given there was a contractual fees clause allowing fee shifting.  However, here is the language in the clause: “In the event of a dispute between Landlord and Tenant, any and all attorney fees shall be paid by [sic] the prevailing party.”  Losing party argued that prevailing party could not recover fees based on the “by” language, but the trial and appellate courts did not buy it after the lower court used equitable powers to reform the clause to change the language to “to”—fees shall be paid to the prevailing party.  After all, most contractual fees clauses do not penalize a prevailing party by having to pay the fees of an unsuccessful party.

THERE IS A LESSON HERE FOR CONTRACT DRAFTERS—PROOF YOUR DOCUMENTS TO MAKE SURE THEY MAKE SENSE.

Fee Clause Interpretation: Plaintiff Purchaser Obtaining Specific Performance In A Real Estate Transaction Properly Awarded Fees Under A Contractual Fees Provision Against Losing Seller

Closing Costs Provision Was Distinct From Litigation Prevailing Party Provision.

            The next case, Classic Auto Repair, Inc. v. Ida, Case No. B308002 (2d Dist., Div. 8 Mar. 8, 2023) (unpublished) is a real estate primer on contractual interpretation on allocation of attorney’s fees exposure with respect to litigation and closing costs.  The plaintiff purchaser won attorney’s fees in a specific performance action under a contractual fees clause, with the losing party arguing that a different “closing costs” provision prevented a fee award because both parties agreed to bear their own fees as far as closing.

            The appellate court did not buy appellant’s argument.  The paragraph relied on by appellant only applied to closing fees, while a different paragraph did allow for recovery of fees incurred in court proceedings.  In reaching this conclusion, because co-contributor Mike is a real estate transactional attorney among other practice areas and always searches for appellate insights into transactional documents, the appellate panel observed that headings and titles can provide insight into the parties’ intent—with the operative provision entitled “Attorneys’ Fees” and the inapt provision entitled “Closing Costs.”

Fee Clause Interpretation, Homeowner Associations, Reasonableness Of Fees: $132,070.40 Fee Award To Defendant Homeowners Was Affirmed On Appeal As Against Plaintiff Homeowners In Tree Obstruction Dispute

Plaintiffs Pled CC&Rs As A Basis For Nuisance Claim, So There Was Fee Entitlement Under Civil Code Section 1717, CCP Section 1021, And Civil Code Section 5975, With The Fee Award Being Reasonable After A Minor Haircut By The Trial Judge.

            Plaintiff homeowners sued neighboring homeowners in a tree obstruction action based on nuisance and defendants’ alleged violation of certain specified CC&Rs.  After everyone attended an unsuccessful mediation, the matter proceeded to trial and was decided in defendants’ favor.  The trial judge later awarded defendants, as against plaintiffs, attorney’s fees of $132,070.40 (reduced from the $143,381.76 “ask”). 

            Plaintiffs’ appeal in Mascaro v. Brown, Case No. B319419 (2d Dist., Div. 6 Jan. 19, 2023) (unpublished) was unsuccessful.  Although challenging fee entitlement, plaintiffs’ nuisance action was also based on CC&Rs, such that fee entitlement existed under Civil Code section 1717 (based on the CC&Rs fees provision), CCP section 1021 (same; broad CC&Rs fee provision), and Civil Code section 5975 (Davis-Stirling Act fee-shifting provision applicable where governing HOA documents are being enforced).  The fees for mediation work were allowable under section 5975(c) regardless of the CC&Rs’ specific language.  With respect to the amount of the fees awarded, the trial judge did not abuse his discretion given that there was competent fee substantiation in the form of invoices and the lower court did reduce some duplicative, unnecessary work.  Finally, the appellate court agreed that the defendants were also entitled to reasonable appellate fees for their win in the appeal.

Fee Clause Interpretation: “Arising Out Of” Contractual Fee Clause Language Was Broad Enough To Allow A Prevailing Party On A Related Statutory Claim To Obtain Fee Recovery

Trial Court Denied Fee Motion, So It Was Remanded For A Rehearing To Fix Reasonable Fees.

            “Arising out of” language in a contractual fees clause can indeed give rise to fee exposure even where a prevailing party succeeded on a related statutory claim rather than a contract qua contract claim.  Varney Entertainment Group, Inc. v. Avon Plastics, Inc., Case No. G060870 (4^th Dist., Div. 3 Jan. 17, 2023) (unpublished), authored by Justice Goethals, came to that conclusion in reversing a fee denial and remanding for a rehearing to fix reasonable fees.

            There, the contract clause stated: “In the event of any arbitration or litigation, including breach, enforcement or interpretation, arising out of this Agreement, the prevailing party of such litigation shall be entitled to recover reasonable attorneys’ fees, costs, and expenses, including pre-litigation and appellate attorneys’ fees and costs.”  The issue on appeal was whether Avon’s previous unsuccessful appeal arose out of the endorsement agreement by which Avon used Mr. Varney’s name and likeness without his permission.  In the prior appeal, Avon unsuccessfully appealed a trial court’s denial to it of attorney’s fees under Civil Code section 3344’s likeness misappropriate statute.  However, after doing a survey of cases recognizing that “arising out of” contractual language is broad in scope, the panel concluded that the prior appeal did arise out of the Avon-Varney endorsement contract such that fees should not have been denied outright.

Fee Clause Interpretation, Section 1717: Second District Reverses Fee Awards Totaling $680,104.12 As A Matter Of Law

One Award Reversed Because It Only Covered An Arbitration/Ensuing Litigation Even Though No Arbitration Occurred, And Other Award Overturned Because It Was Unclear That Fiduciary Breach Claim Was Not Barred By Santisas.

            San Jose Nihonmachi, LLC v. Miraido Corp., Case No. B323093 (2d Dist., Div. 1 Jan. 4, 2023) (unpublished) shows how the absence of fee entitlement can lead to a reversal of substantial fee awards: in this case fee awards totaling $680,104.12, awards in favor of two different defendant groups.

            The first reversed award of $287,380.75 evaporated based on the narrowness of the fees clause, which covered only prevailing parties in “such arbitration and ensuing legal action.”  Given the parties bypassed litigation and only used the court process, the absence of arbitration occurring was dispositive.  (Kalai v. Gray, 109 Cal.App.4^th 768, 777 (2003).)

            The second overturned award of $392,723.37 involved a voluntary dismissal without prejudice by plaintiff/appellant of an action, invoking a fees clause that was not limited to just arbitration/post-arbitration activities.  Plaintiff did dismiss certain contract claims before they were adjudicated, which did not give rise to fee exposure under Santisas v. Goodin, 17 Cal.4^th 599, 622 (1998).)  The issue on appeal concerned whether a dismissed breach of fiduciary duty claims was based on contract or in tort (because Santisas will not bar fee exposure where a tort is within the ambit of a broadly-worded fees clause).  The appellate court determined that it was “unclear” whether the fiduciary duty claim was not based on contract rather than tort, with any uncertainty meaning that it was “on the contract” and barred by Santisas.  (Kangarlou v. Progressive Title Ins. Co., Inc., 128 Cal.App.4^th 1174, 1178-1179 (2005).)  This last holding provides some discovery tips for the defense to smoke out whether plaintiff’s claims are based in contract or just tort, or both. 

Arbitration, Fee Clause Interpretation: $1,648,620.17 Contractual Fee Award By An Arbitration Award Against FeeDx Affirmed In A Ninth Circuit Opinion

Arbitration Tribunal’s Fee Award Was Not Completely Irrational In Nature Under The FAA.

            In HayDay Farms, Inc. v. FeeDx Holdings, Inc., Case Nos. 21-55650/21-55698 (9^th Cir. Dec. 19, 2022) (published), two parties (HayDay and FeeDx) entered into an exclusive distribution agreement with each other through Nippon, providing for arbitration and making Nippon liable for HayDay’s breaches.  Later, the three parties entered into a settlement agreement, which modified but did not replace the exclusive distribution agreement.  The settlement did not resolve the disputes, which went to arbitration resulting in substantial arbitration awards in favor of HayDay and Nippon as against FeeDx.  The arbitration award was over $26.2 million, augmented by a contractual fees and costs award of $1,648,620.17.  The district court vacated about $7 million of the merits award, but it left the remaining portion and fees/costs awards intact.

            The parties appealed.  This was a good move by HayDay and Nippon, because the Ninth Circuit reinstated the $7 million previously vacated portion of the award.  With respect to FeeDx’s challenges, they did not win on appeal.  The main problem is that the standard for vacatur under the FAA, 9 U.S.C. § 10(a)(4), is exceedingly high, meaning that the arbitration tribunal manifestly disregarded the law or the award was completely irrational.

            The main fee clause in the settlement agreement provided: “If FeeDx or Hayday brings legal action to enforce its rights under this Settlement Agreement, the prevailing party will be entitled to recover its expenses (including reasonable attorneys’ fees) incurred in connection with action and any appeal.” FeeDx argued that Nippon could not be awarded fees because it was not a party to the agreement.  The Court of Appeals disagreed, given that the “prevailing party” language was broad and given that Nippon was potentially liable for HayDay’s breaches—the tribunal’s interpretation of this clause as allowing fees to Nippon was not completely irrational under the circumstances. 

Fee Clause Interpretation, Lodestar: $547,465.10 Fee Award And $23,589.25 Costs Award To Prevailing Defendant Sellers Affirmed On Appeal

Liability Cap Did Not Apply To Fees, Out-Of-County Attorneys Showed Good Cause To Represent Defendants In Tuolumne County, And Trial Judge Reduced Fee Request By 20%.

            In Apartment Rental Assistance II, Inc. v. 80 Oak Hills, L.P., Case No. F083238 (5^th Dist. Dec. 13, 2022) (unpublished), buyer plaintiffs lost a summary judgment to seller defendants where three purchase agreements had separate fee clauses.  Defendants moved for fees of $677,465.10 and for $23,589.25 in costs, with the lower court awarding them $547,465.10 in fees and the entire “ask” in costs.  Plaintiffs appealed.

            They lost.  Their main argument on entitlement was that there was a “fee cap” in one of the agreements, but a close look at it showed that it only applied to liability determinations—reinforced by no similar cap in the actual fee provisions.  With respect to the amount of lodestar fees awarded, the Fifth District found no abuse of discretion.  Not only did the lower court reduce the fees request by about 20% for excessive associate compensation and assembly of binders, but the out-of-town lead counsel representing defendants showed there was good reason for his firm to be litigating in Tuolumne County because he had years of experience with the clients on real estate matters such that they were justified in not using local counsel without his “experience curve.”

Fee Clause Interpretation, Mediation: Fee Clause Allowing Only Prevailing Party Attorney’s Fees For Mediation Or Arbitration Proceedings Enforced As Written

Fees Clause Did Not Allow For Recovery Of Fees In Litigation.

            In Glass v. Whills, LLC, Case Nos. B304806 et al. (2d Dist., Div. 4 Aug. 10, 2022) (unpublished), both the trial and appellate court were dealing with a civil litigant’s claim for prevailing party attorney’s fees recovery under a fees clause providing that any disputes must be submitted first to mediation and, if unresolved, to binding arbitration, and that “[t]he non-prevailing party in any such mediation or arbitration, as determined by the mediator or arbitrator, shall pay the prevailing party’s court cost and attorneys’ fees.”  The lower court denied the litigant’s motion for fees, finding that the mediations in which the parties participated failed to result in a prevailing party resolution or determination, and the parties did not thereafter pursue arbitration.

            The appellate court affirmed that conclusion.  It found that the clause was unambiguous; the binding mediator had the ability to determine the prevailing party such that the absence of language indicating a court could award prevailing party fees sealed the deal.

Deeds Of Trust, Fee Clause Interpretation: Borrower Losing Wrongful Foreclosure Action Was Properly Assessed With Contractual Attorney’s Fees Under the Note To The Tune Of $878,067.11

“Security First”/Antideficiency Arguments Did Not Prevail Because Contractual Fee Exposure For Wrongful Foreclosure Claims Were Independent Contractual Obligations.

            This next appeal is a somewhat related appeal to our independent July 26, 2022 post regarding sanctions awarded against plaintiff borrower’s attorney for violation of trial preparation rules.  In Shiheiber v. JPMorgan Chase Bank, N.A., Case No. A160189 (1^st Dist., Div. 2 July 28, 2022) (unpublished), plaintiff lost wrongful foreclosure claims against lender (the merits ruling affirmed in an earlier appeal), with the trial judge assessing $878,067.11 in contractual fees against borrower and in favor of lender based on a promissory note fee clause.

            That fee award was affirmed on appeal, with borrower not challenging the amount of the award, but only challenging fee entitlement.  Because the wrongful foreclosure loss triggered contractual fee exposure under separate loan documents, the fee award was legally warranted.  (See Passanisi v. Merit-McBride Realtors, Inc., 190 Cal.App.3d 1496, 1507-1509 (1987); Flynn v. Page, 218 Cal.App.3d 342, 349 (1990); Jones v. Union Bank of California, 127 Cal.App.4^th 542, 551 (2005).)  These cases establish “that a foreclosure sale does not extinguish or preclude enforcement of a prevailing party attorney fee clause in the loan instruments.  Such a provision represents a separate contractual covenant, distinct from the covenant to repay the loan on specified terms, that is simply intended to alter the traditional American rule that each side bear their own attorney fees in the event of litigation between them.”  (Slip Opn., p. 9.)  The promissory note clause was broad enough to encompass tort wrongful foreclosure claims.  (Yoon v. Cam IX Trust, 60 Cal.App.5^th 388, 391, 393 (2021).)  So, the fee award was upheld.

Fee Clause Interpretation: Denial Of Attorney’s Fees Was Reversed Because Debt Extension Agreement Was Inextricably Interrelated With Loan Agreement Containing A Fees Clause

Looking Only At The Debt Extension Agreement Was Too Myopic In Nature.

            In Cable v. O’Neill, Case No. D079096 (4^th Dist., Div. 1 July 7, 2022) (unpublished), debtor defaulted under a loan agreement containing a contractual fees clause.  Creditor and debtor then entered into a debt extension agreement not having a fees clause, but obviously referencing the original loan agreement and inextricably interrelated to that first agreement.  The lower court recognized plaintiff creditor was a prevailing party after entering judgment for the unpaid loan amount, but it denied fees because there was no fees clause in the subsequent extension agreement.  The 4/1 DCA reversed, finding that the two agreements were inextricably interrelated such that fees should be awarded on remand to plaintiff creditor.

Allocation, Fee Clause Interpretation: Plaintiff Owner Losing A Variety Of Intertwined Claims Arising From A Home Improvement Contract Was Properly Assessed With Contractual Party Fees As Against The Home Improvement Installer

Installer Was Awarded $1,223 In Costs And $95,531.68 In Attorney’s Fees.

            Plaintiff owner sued a home installer on various contractual, tort, and statutory theories for a job of under $4,000, with there being a home improvement contract with a fees clause covering performance issues under the contract.  Owner lost across the board, with the lower court awarding installer $1,223 in costs and $95,531.68 in attorney’s fees.  The 2/6 DCA affirmed in Plyley v. Renovating Specialist, Inc., Case No. B309457 (2d Dist., Div. 6 May 31, 2022) (unpublished).  The contractual fees clause was broad enough to encompass contractual and interrelated tort/statutory claims, such that no apportionment was required.  The appellate panel also indicated that installer was entitled to appellate fees and costs as the victor, remanding to the trial court with directions to do so upon a properly filed motion. 

Fee Clause Interpretation: $196,231.50 Attorney Fee Award To Prevailing Party Seller Of Real Property Affirmed On Appeal Despite Seller’s Failure To Attempt Mediation Pursuant To Form Purchase Agreement’s Fee Provision

Fee Provision Without Mediation Requirement In Later Jointly Drafted Cooperation Agreement Governed.

            In Emery v. Marchick, Case No. B307999 (2d Dist., Div. 1 May 23, 2022) (unpublished), defendant used a California Association of Realtors’ Residential Purchase Agreement form in her offer to purchase a residential property from plaintiff.  The form purchase agreement contained an attorney fee provision requiring that before filing a lawsuit, the parties attempt to resolve through mediation disputes arising out of the agreement or resulting transactions. Pursuant to an accepted requirement in plaintiff’s counter offer, the parties entered into a jointly drafted Cooperation Agreement regarding a lot line adjustment.  The Cooperation Agreement also contained an attorney fee provision, but it did not require mediation of disputes. Well, a dispute arose and plaintiff filed a complaint claiming defendant breached the Cooperation Agreement – with judgment entered in plaintiff’s favor in the amount of $285,000 plus another $196,231.50, out of the $204,386.50 requested, in prevailing party attorney fees. 

            On appeal, defendant argued that plaintiff was not entitled to an award of attorney fees because she failed to attempt to mediate before filing her complaint.  The 2/1 DCA disagreed with defendant’s contention and affirmed.  For starters, the attorney fee provision in the Cooperation Agreement governed because the parties entered into it after the form purchase agreement and the fee provision the parties included in the Cooperation Agreement superseded.  (Civ. Code, § 1585; Frangipani v. Boecker, 64 Cal.App.4th 860, 863 (1998).)  Additionally, pursuant to Civ. Code, § 1651, where there is inconsistency in terms, those negotiated by the parties prevail over form terms which are not separately negotiated.  Finally, pursuant to Civ. Code, § 1641, courts interpret contracts to give effect to every part and avoid interpretations that render part of a contract as surplusage. (Rice v. Downs, 248 Cal.App.4th 175, 186 (2016).)  Interpreting that the form purchase agreement’s fee provision controlled would reduce the latter Cooperation Agreement’s fee provision to surplusage – something the appellate panel declined to do.

Fee Clause Interpretation, Section 1717: $157,191 Fee And $7,219.60 Costs Award Under A Contractual Fees Clause Affirmed On Appeal

Defendants’ Nonsignatory Status Did Not Change The Result Because Plaintiffs Would Have Been Entitled To Fees Had They Won.

            Based on a broad contractual fees clause in an agreement governing a dispute over the use of large electric sign in the City of Long Beach to advertise car dealerships in the area, defendants obtained a summary judgment against plaintiffs.  The lower court then awarded prevailing party fees and costs to defendants to the tune of $157,191 in fees and $7,219.60 in costs.  The appellate court rejected plaintiffs’ challenges to the fee award in H.T.L. Properties, LLC v. Speck, Case No. B302436 (2d Dist., Div. 2 Apr. 26, 2022) (unpublished).  The principal argument on appeal was that defendants were nonsignatories to the agreement, so no fees were warranted.  Appellants, you are mistaken, said the appellate panel, pointing out that plaintiffs would have been entitled to fees against the nonsignatories such that the reciprocal entitlement ran in favor of the nonsignatories under Civil Code section 1717—citing Brown Bark III, L.P. v. Haver, 219 Cal.App.4^th 809, 819 (2013). 

Estoppel, Fee Clause Interpretation: A Little Over $320,000 Fee Award Gets Reversed As A Matter Of Law Because The Clause Did Not Cover The Scope of the Adjudicated Dispute

Interpretation Of Fee Clause Wording Is A Fertile De Novo Review Issue For Losing Litigants Facing Fee Exposure.

            On appeal, one of the best issues is whether there is fee entitlement. In many disputes, this means does the fee clause cover the dispute which was adjudicated before a court or jury?  If the answer is no, even though a trial judge decides otherwise, an appellate court can reverse the fee award as a matter of law.

            That is what happened in BFCAP Investments, LLC v. Lifehouse Parkview Properties, LLC, Case No. B307388 (2d Dist., Div. 4 Apr. 21, 2022) (unpublished). There, defendant sellers won a summary judgment against plaintiff buyer, with the trial judge awarding a full request of a little over $320,000 in attorney’s fees under a contractual fees clause. (Even then, the trial judge was concerned that the defendants failed to quote the full fees clause so that a proper consideration of the fee award could be made, with the defense apologizing at some stage for this omission.) Nonetheless, the appellate court reversed, deciding that the fees clause only related to disputes over Acquired Assets rather than property post-default issues.  Even though plaintiff had prayed for fees, the reviewing court did not view this as an estoppel because defendants still had to show their own entitlement to fees.

Fee Clause Interpretation, Indemnity: Landlord Prevailing In Breach Of Contract Action Watches $496,757.31 Fee Award Disappear On Appeal

The Parties’ Leases Did Not Include Attorney Fees Provisions, And The Trial Court Erred In Finding That The Leases’ Third Party Indemnity Provisions Permitted Recovery Fees In A Direct Breach Of Contract Action

            In Blackburn v. County of San Diego, Case No. D076904 (4^th Dist., Div. 1 February 24, 2022) (unpublished), the trial court awarded $496,757.31 in attorneys’ fees to the prevailing landlord plaintiff in a breach of contract action against the County of San Diego – finding the language of the indemnity provisions in the parties’ leases to be so broadly worded that they allowed plaintiff to seek direct indemnity from tenant in the form of attorney fees.

            Citing its previous decision in Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016) [discussed in our October 24, 2016 post], the 4/1 DCA reversed – finding nothing in the indemnity provisions to suggest that the provisions were not limited to third party claims – nor anything that specifically addressed the issue of, nor expressly permitted, recovery of attorney fees in an action on the contract between the parties.  “To find a right to attorney fees in a direct action under an ordinary indemnity provision, as here, would invest every agreement containing a standard third party indemnity clause with a prevailing party attorney fee clause. This is particularly inappropriate because section 1717, subdivision (a), which governs the award of contractual attorney fees, applies only when the contract ‘specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party . . . .’ The indemnity clause here does not ‘specifically’ refer either to actions to enforce the contract or to the prevailing party. Rather, it is a third party indemnity clause. The court erred in construing it otherwise.” (Alki Partners, supra, 4 Cal.App.5th at p. 606.)

Deeds of Trust, Fee Clause Interpretation: Borrower Prevailing On Quiet Title And Equitable Lien Claims Based On Deeds Of Trust Properly Denied Prevailing Party Fees Based On The Wording Of The So-Called “Fee Clauses”

Look At the Wording, Folks!

            In determining whether there is attorney’s fees entitlement, one must carefully look at the wording of the clauses under which fees are sought as well as the documents which are being sued upon.  Although the borrower technically prevailed on some claims against the lender, the absence of fee entitlement properly led to a conclusion that borrower was not entitled to fees.

            What happened in HSBC Bank USA v. Malekan, Case No. B299157 (2d Dist., Div. 4 Feb. 15, 2022) (unpublished) is that a borrower did prevail, even upon reversal (which might have made a difference, but did not), on some quiet title/equitable lien claims brought by lender under a deed of trust.  After getting some victories, borrower moved for attorney’s fees under clauses in the deed of trust and promissory note.  The lower court denied fees in entirety, so an appeal was brought by borrower.

            The denial of fees was affirmed.  The main problem for borrower was that the deeds of trust clause advocating for fees was not a fees clause, because it only allowed fees to be added to the secured debt, reasoning supporting a rejection of fees under Chacker v. JPMorgan Chase Bank, 27 Cal.App.5^th 351 (2018) [reviewed in our September 20, 2018 post] and Hart v. Clear Recon Corp., 27 Cal.App.5^th 322 (2018) [reviewed in our September 19, 2018 post].  With respect to the argument that fees were required to be awarded under the promissory note, lender did not sue under that instrument, so no go!

Family Law, Fee Clause Interpretation: Fee Clauses In Dissolution Proceeding Did Not Preclude Ex-Wife’s Recovery Of Fees In Subsequent Domestic Violence Prevention Act Proceeding

Case Remanded On Ex-Wife’s Request For $337,236 In Fees For DVPA Proceeding.

            Where a litigant is involved with classic contractual interpretation of a fees clause without any conflicting extrinsic evidence, the result can be a de novo review shocker as revealed in Marriage of Fischer, Case No. A160179 (1^st Dist., Div. 2 February 8, 2022) (unpublished). 

            In this one, ex-wife prevailed in a DVPA proceeding against ex-husband despite the existence of an earlier dissolution agreement with allocation of how attorney’s fees were to be resolved.  However, nothing in the agreement or hearings specified that the dissolution agreement applied to the subsequent DVPA proceeding where wife prevailed and sought $337,236 in attorney’s fees.  The lower court denied fees, but the appellate court reversed after scouring the record and determining that the distinct DVPA proceeding was not encompassed within the dissolution agreement provisions with respect to fees.  So, the matter was remanded with a potential bright upside for ex-wife given the lack of conflicting extrinsic parol evidence.

Fee Clause Interpretation, POOF! After A Merits Reversal, Language Of The Fees Clause Meant That The Reversed Party Did Not Prevail

Fee Clauses Without Prevailing Party Language Have Such A Condition Implied.

            Drink Tank Ventures, LLC v. Real Soda in Real Bottles, Ltd., Case Nos. B29881/B302215 (2d Dist., Div. 2 Nov. 10, 2021) (published) is an interesting case where a “prevailing party” had its intentional interference claim reversed as a matter of law.  At the lower court, where judgment was entered on this reversed claim, the trial judge granted the “then” prevailing party $280,700 in attorney’s fees based on a nondisclosure contract clause (out of a requested $785,981, based primarily on overbilling as well as denying a multiplier request).  The attorney’s fees award also evaporated because of the reversal of the merits judgment.  The appellate court looked at the fees clause, which did not have “prevailing clause” language, but implied it under CCP § 1021 and Civil Code $ 1717.  Once what was done, based on the reversal, the fee award went POOF!

Arbitration, Fee Clause Interpretation, Landlord/Tenant: 1/3 DCA Affirms Trial Court’s Denial Of Attorney Fees To Prevailing Tenant

Fees Incurred For The Court Proceedings Were Part Of The Arbitration Process Called For In The Lease For Resolving Fair Market Rent Value And Not Recoverable Under The Prevailing Party Provision Which Applied To An Action Involving A Breach Of The Contract Or Determination of Rights

            In California Union Square L.P. v. Saks & Company LLC, Case No. A162043 (1^st Dist., Div., 3 October 29, 2021) (published), defendant tenant exercised its option to renew its lease following the initial 25-year term.  Because landlord and tenant were unable to agree on the fair market value of the base rent, the dispute resolution provision of the lease was triggered – which mandated arbitration.  Tenant ultimately prevailed after two arbitrations and multiple litigation proceedings in superior, federal, and appellate courts – including a petition for review with the California Supreme Court (which was denied).   Tenant then moved for roughly $1 million in attorneys’ fees – expressly noting that, pursuant to the fees provision of the lease, it was seeking fees incurred only in court proceedings, not any of the fees or costs incurred in the two arbitrations.   The trial court denied tenant’s motion following full briefing and a hearing.

            Tenant argued on appeal that the trial court erred because the parties’ lease – although providing that arbitration costs were to be divided equally between the parties – included a provision mandating “that the prevailing party in any action or proceeding to enforce the [l]ease or obtain a declaration of rights under the [l]ease recover its attorneys’ fees and costs from the losing party.”  Tenant claimed this prevailing party provision controlled the allocation of fees for the various court proceedings.  The appellate panel disagreed – finding the court proceedings were not undertaken for the purpose of enforcing or obtaining a “declaration of rights” under the lease, such as a dispute over a contractual term or obligation.  Rather, the court proceedings arose from the parties’ obligations under the provision for disputes on the fair market value of the base rent requiring arbitration.  As a result, the fees incurred for the court proceedings were a part of the process for resolving the value of the base rent and not recoverable under the prevailing party provision.

Fee Clause Interpretation, Reasonableness Of Fees: Attorney Awarded Prior Frivolous Appeal Sanctions Denied “Second Bite” Request For Civil Code § 1717 Additional Fees Based On Prior Representations Made To Court Of Appeal On Reasonableness Of Work

Also, Fee Clause With “Incurred” Language Means That Fees Did Need To Be Incurred.

            The result in Korff v. Goodrich, Case No. A160917 (1^st Dist., Div. 2 Oct. 27, 2021) (unpublished) shows the wisdom in the saying “pigs get fat, hogs get slaughtered,” coined by Rubbery Figures, a satirical rubber puppet series screened in Australia in the 1890s. 

            What happened in this dispute between caregiver and deceased husband’s daughter, which led to a will contest and an eventual settlement agreement with a fees clause, is that caregiver took position inconsistent from the settlement and eventually lost three appeals after adverse decisions were made at the trial court stage.  The appellate court earlier determined that the appeals were frivolous, awarding fees as sanctions to the main prevailing party’s attorney in the sum of $49,875 (but totaling $91,084 as to other attorneys involved)—with the main attorney indicating to the appellate court that this amount represented 142.5 hours at $350/hour.  Then, before the lower court, the main attorney sought another $103,000 in compensation for additional hours at a $675 hourly rate.

            The lower and appellate courts did not buy it, with the reviewing court affirming the lower court’s denial of the requested additional compensation.  After all, main attorney’s “additional ask” contradicted representations made to the appellate court such that he was judicially estopped from claiming otherwise.  Also, the fee submissions raised the specter that there was duplicative work by three attorneys (“too many cooks in the kitchen”).  Finally, attorneys asking for additional fees did not show that their client actually “incurred” fees, although such a requirement in a fee agreement is something which must be satisfied.  (San Diego Partnership v. San Dieguito River Valley Regional etc. Authority, 61 Cal.App.4^th 910, 915, 919 (1998). 

Fee Clause Interpretation, Section 1717: Where Cross-Complaint Did Not Involve Any Enforcement Or Promise Breaches Of A Purchase Agreement With A Fees Clause, Attorney’s Fees Lacked Any Entitlement Basis

Section 1717 Did Not Change The Analysis, Because The Scope Of The Fee Clause Can Only Relate To Contractual Claims—Meaning CCP § 1021 Must First Be Overcome.

            Otay Land Co., LLC v. U.E. Limited LLC, Case No. D077274 (4^th Dist., Div. 1 Oct. 20, 2021) (unpublished) reminds us that Civil Code section 1717 reciprocity principles do not kick in unless the fees clause, by its terms, covers the claims which are at issue in the case.  If not, CCP § 1021 is not overcome, and section 1717 makes no difference.

            In this case, plaintiff/cross-defendant prevailed on its positive claims and on the claims of defendant/cross-complainant such that plaintiff/cross-defendant was the prevailing party.  Cross-complainant had prayed for attorney’s fees in its prayer, with the trial judge denying an earlier motion to strike because a 1998 purchase agreement was at least proffered as a basis for fee entitlement.  The purchase agreement had a contractual fees clause which read this way: “If any legal action . . . is brought for the enforcement of this Agreement, or because of a breach, default, or misrepresentation in connection with this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees.”  After its win, plaintiff/cross-defendant moved for fees under the purchase agreement, a request denied by the trial court.

            The 4/1 DCA affirmed the fee denial.  Nothing in the two cases fell within the scope of the fee clause, with misrepresentation allegations only relating to an adverse possession claim rather than having causal connection with the 1998 purchase agreement containing the fees clause.  Plaintiff/cross-defendant argued that Civil Code section 1717 altered the result, but the appellate court reminded everyone that its reciprocity principle only applies if the fee clause could be interpreted broadly enough to encompass the claims at issue in the cases—meaning Code of Civil Procedure section 1021 (leaving the parties to strike their own bargain on fee recovery) having to be surmounted before section 1717 is considered.  Finally, plaintiff/cross-defendant claimed that the other side was estopped from denying fee entitlement based on the prayer in the cross-complaint and earlier motion to strike victory; however, this was rejected because a mere assertion of the right to fees does not operate as an estoppel where there is no true fee entitlement under the contractual clause.  (R.W.L. Enterprises v. Old Castle, Inc., 17 Cal.App.5^th 1019, 1035-1036 (2017).) 

Family Law, Fee Clause Interpretation: Wife Properly Allowed Section 217 Sanctions Against Husband For Divorce Decree Enforcement Purposes

However, Lower Court Properly Denied Her Fees On Husband’s Prior Efforts To Set Aside The Martial Settlement Agreement.

            In Marriage of Mirza, Case Nos. G057613 et seq. (4^th Dist., Div. 3 Sept. 1, 2021) (unpublished), husband and wife entered into a marital settlement agreement and divorce decree based upon the agreement.  Husband then attempted to set aside the MSA and decree, but he was ultimately unsuccessful.  The lower court denied wife’s fees relating to husband’s efforts to set aside the divorce decree, but the court did grant wife sanctions of $100,000 under Family Code section 271 to enforce the divorce decree after the set aside effort did not resonate.  The 4/3 DCA, in an opinion authored by Justice Goethals, affirmed.  A nice “line” was drawn by the family law judge, with the set aside efforts not clearly falling within the MSA and with husband’s set aside attempt to rescind being a discretionary call on how to adjust the equities.  However, wife’s subsequent efforts relating to the divorce decree were justified such that the $100,000 award was sustained on appeal.

Costs, Deadlines, Fee Clause Interpretation, Lodestar: L.A. Groundwater Case Fee And Costs Awards Remanded For A Revisit By The Fifth District

Variety Of Costs, Fee Entitlement, And Lodestar Issues Explored In This Unpublished Opinion.

            Antelope Valley Groundwater Cases, Case No. F083138 (5^th Dist. Aug. 24, 2021) (unpublished) was a Los Angeles-venued case which produced a global settlement complete with a provision for certain parties to bear attorney’s fees and costs by class counsel.  Class counsel sought to recover $3,348,160 in attorney’s and paralegal fees (4,538.8 hours at $720 per hour for attorneys; 679.5 hours at $110 or $125 per hour for paralegals).  However, the trial judge awarded class counsel $2,269,400 in attorney’s fees and $80,224 in paralegal fees, reducing the attorney requested hourly rate from $720 to $500 per hour.  He also allocated fees among different parties and rejected two parties’ attempts to pay the awards out over time under Government Code sections 984 and 970.6.  He denied a 2.5 positive enhancement request.  The trial judge also taxed over $24,000 in routine costs requested by class counsel, triggering an appeal by the class.

            The Fifth District (although based in Fresno, not Los Angeles, but assigned the case on appeal for neutrality reasons) reversed and remanded with some specific instructions.  With respect to fees, the appellate panel initially determined that the settlement agreement did authorize fee/costs entitlement and then found that the trial judge’s reasoning on the lodestar was unclear, especially as to why the requested hourly rate was discounted downward from $720 and with a “Great Recession” lower rate rationale not explaining why higher rates were not justified from when it ended (2010 going forward).  Equally salient was the fact the lodestar could not be diminished solely or primarily because a governmental entity was the party with fee/costs exposure.  But the lower court did properly allocate fee/costs recovery among some parties and correctly denied the periodic payment requests because a fees/costs judgment was not a tort judgment against a public entity under section 984 and the requesting entities did not show that the L.A. County Board of Supervisors passed a hardship ordinance for purposes of satisfying section 970.6.  Finally, on the routine cost issues, class counsel did not have to use Judicial Council costs memorandum forms (they are optional only), the trial judge impliedly allowed counsel more time to file the costs memorandum, and there were arithmetic discrepancies which the appellate court could not decipher—sending all of this back for a re-do, including a relook at the enhancement request.